U.S. Inflation "Spikes"!

Rate cut dreams shattered, and the shadow of rate hikes returns?

U.S. March CPI data caused a stir—up 0.9% month-on-month, the largest increase in nearly four years, rebounding to 3.3% year-on-year, far exceeding expectations. The main culprit is energy: gasoline prices surged 21.2% in a single month, hitting the highest record since 1967, contributing nearly 70% of the overall increase.

Excluding food and energy, core CPI still rose 2.6% year-on-year, moving further away from the Federal Reserve’s 2% target. Housing rents are still rising, but the pressure is mainly concentrated in energy and services sectors, not yet spreading comprehensively.

Once the data was released, market hopes for rate cuts instantly vanished. Traders priced in: no rate cuts in April and May, with the full-year rate cut expectations cut from two or three times to at most once, and the earliest rate cut window likely after September. Even more seriously, the March FOMC minutes already discussed the possibility of "rate hikes"—if energy prices continue to soar, rate hikes might be back on the table.

Asset prices immediately reversed: U.S. Treasury yields soared, the dollar strengthened, gold and U.S. stocks came under pressure and declined, and global markets became more volatile.

In simple terms: inflation is not under control, no rate cut in sight, and rate hikes are not "impossible" to call. Next, the Middle East situation, oil price trends, and Q2 data will determine how the Federal Reserve plays its hand.